Yuan’s rising global influence

 

The currency’s correlation with an MSCI Inc index of its developing-nation peers rose to record in September on a weekly basis before edging back slightly amid the Omicron outbreak, Bloomberg data show.

` BEIJING: The Chinese yuan is having a greater impact on its emerging-market counterparts than ever before and may play a crucial role in determining their performance in the coming year.

` The currency’s correlation with an MSCI Inc index of its developing-nation peers rose to record in September on a weekly basis before edging back slightly amid the Omicron outbreak, Bloomberg data show.

` While the close relationship is partly a result of China’s large weighting, it’s also been driven by the yuan’s links to the Brazilian real reaching the strongest since at least 2008, and that with India’s rupee touching a three-year high.The yuan’s rising global influence is yet another sign of China’s deepening connections across the world economy.

` Investors are increasingly being drawn to its bonds as an alternative to United States Treasuries, while some banks are calling for the yuan to join the dollar, euro and yen as a global reserve currency.

` ADVERTISING Yet with China’s potential being offset by murky policy making and regulatory crackdowns, being tied too closely to the yuan may also backfire.

` “China is going to be a very important element of emerging-market stability and the growth picture,” said Magdalena Polan, principal economist at PGIM Ltd in London.

` “The willingness for Chinese policy makers to stabilise growth will be very important to the outlook for Latam and Asia and South Africa, as countries there still rely quite a lot on exports from China.”

` While correlations can be measured in many ways, China’s increasing presence in global trade has progressively boosted the yuan’s links with those of its emerging-market peers.

` In 2000, the average developing nation sent only 2.2% of its exports to China, while that proportion has now grown to 11.3%, according to data from Societe Generale SA.

` The investment bank says the yuan’s relative stability has traditionally made it most closely correlated with those of its emerging-market peers with strong and credible policy makers such as Mexico, Chile and South Korea.

` Since the US-China trade war in 2018, however, the yuan’s links with emerging markets as a whole have grown stronger, with the average correlation rising to 83% that year, according to SocGen data.

` There’s a risk of course that those very connections may also weigh on emerging-market currencies if the yuan begins to weaken. The major risk of that happening looks to be due to potential policy divergence, with the People’s Bank of China expected to ease monetary policy in 2022, just as central banks from the US, UK and Australia start to tighten.

` The yuan will face a particular challenge as the Federal Reserve beings to raise borrowing costs, a move that is anticipated to lead to a stronger dollar and outflows from emergin

`g markets. Still, China’s currency has so far shown itself to be relatively resilient to monetary policy at home and abroad. China’s economy has become an increasingly important influence on global growth over the past decade, and a vital one for emerging markets, according to JP Morgan Private Bank.

` “Since the financial crisis, we’ve had mini cycles in global emerging markets, largely coincident in China’s property and credit cycle and since the crisis that has been the key driver of the outlook in emerging markets for the most part,” said Alexander Wolf, head of investment strategy, Asia, at JP Morgan Private Bank in Hong Kong.

` The yuan’s relative resilience this year has also played a role in limiting fluctuations across emerging markets, in what has otherwise been a very tumultuous 12 months.

` “The fact that the yuan’s not doing too much I categorise it as a volatility suppressant,” said Paul Mackel, head of global foreign-exchange research at HSBC Holdings Plc in Hong Kong. “We believe that stability can last for longer.” — Bloomberg 

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Property prices will hold as ringgit falls to new low against USD and S$

PETALING JAYA: The depreciation of the ringgit will not lead to real estate prices crashing.

The Malaysian Institute of Estate Agents (MIEA) president Eric Kho said property remained a sound investment despite the current economic climate.

“Holding property is always better than holding cash,” he said.

Kho acknowledged that demand for primary or new developments had slowed but not as a result of weakening currency.

He said the slowdown was due to Bank Negara guidelines for banks to be more prudent when providing loans as well as increased construction cost due to the Goods and Service Tax (GST).

Kho said construction cost had increased by up to 15% and some developers were holding back on launching new properties.

He said developers who had launched projects were offering huge discounts to attract buyers.

Kho said there was also a slowdown in the secondary market and those looking to buy could expect to pay between 5 and 10% less, depending on location.

Kho, however, expected this situation to be temporary and said property would eventually appreciate.
- The Star/Asia News Network

Ringgit falls to a new low

PETALING JAYA: China’s central bank adjusted the yuan downwards for the second consecutive day, sending markets and currencies reeling.

The ringgit continued its fall against the US dollar, hitting a new low of RM4.0275, largely due to the devaluation of the yuan.

All currencies in the region also continued with their decline against the US dollar.

On a year-to-date basis, the ringgit is the worst performer among its Asian peers, and is down 13.33%. This is followed by the Indonesian rupiah, South Korean won and Thai baht at 9.88%, 8.35% and 6.99%, respectively.

Comparatively, the yuan is now down approximately 4.61%.

The impact on the ringgit is worse compared to other countries because Malaysia is viewed as a net exporter of energy and prices are depressed now – hovering below the US$50 per barrel mark.

Stock markets across the region fell with the Jakarta Composite Index leading the pack by falling 3.1% followed by Hong Kong’s Hang Seng Index which dropped 2.38%.

There was a “bloodbath” on Bursa Malaysia where about 90% of the 1,000-odd stocks listed closed lower.

The benchmark KLCI fell for the fifth consecutive day, shedding 26.8 points yesterday to close at 1609 points. Since last Thursday, the index has been down by 116 points.

On Tuesday, the People Bank of China (PBOC) moved the guiding rate for the yuan 2% downwards and yesterday it set it at 1.6% lower. The guiding rate is the band within which the yuan is allowed to trade.

The downward movement is viewed as a devaluation of the yuan and the biggest currency movement for the world’s second largest economy since 1994. Although China abandoned its currency peg in 2005, the central bank manages the yuan in a tight range.

The devaluation of the yuan has sparked concerns that China’s economic slowdown was more severe than anticipated and the central bank had to devalue the currency to export its way out of the situation.

Independent economist Lee Heng Guie said that the devaluation that has sparked a global currency war may end up with no winners.

The impact on depreciating ringgit is likely to be felt most by companies which import their raw materials, consumers and parents with children studying overseas.

BY RAHIMY RAHIM, RAZAK AHMAD, AND L. SUGANYA The Star/Asia News Network

Ringgit hits new record low of 2.9109 to Singdollar

Malaysia's ringgit hit a new record low against the Singapore dollar on Friday (Aug 14).PHOTO: AFP

SINGAPORE - Malaysia's ringgit hit a new record low against the Singapore dollar on Friday (Aug 14), after the Malaysian unit slumped to a fresh 17-year low versus the US dollar.

With the fall in oil prices increasing concerns over the country's exports, the ringgit lost as much as 2.6 per cent to 4.1180 per dollar, its weakest since Sept. 1 1998.

It recovered some ground to trade at 4.0660 to the US dollar at 2:04pm, bringing its loss this week to about 4.5 per cent.

Malaysia pegged the ringgit at 3.8000 in September 1998 and maintained it until 2005.

Against the Singapore dollar, the ringgit tumbled 1.55 per cent to 2.9109 as at 11:45am from its close of 2.8665 on Thursday. The ringgit pared its losses to trade at 2.8944 as at 2:04pm.

Better-than-expected economic data on Thursday failed to dispel the gloom with the benchmark stock index falling 1.5 per cent on Friday morning, heading for its lowest close since 2012. Fve-year government bond yield rose to 3.982 per cent, its highest since November 2008.

Oil prices fell with crude futures hitting six-and-a-half lows, exacerbating worries about Malaysia's exports. The country supplies liquefied natural gas and palm oil.

Malaysia has also had to draw heavily on its foreign exchange reserves to defend its currency amid a political scandal, a yuan devaluation and slumping oil prices. Bank Negara governor Zeti Akhtar Aziz said on Thursday the central bank will need to rebuild the reserves that have fallen below US$100 billion for the first time since 2010.

"Foreigners are still selling," said Ang Kok Heng, chief investment officer at Phillip Capital Management Bhd. in Kuala Lumpur, told Bloomberg News. "Unless the ringgit stops weakening, I don't know how long the selling will continue." - New Straits Time

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Global bank profits hit US$920bil, China accounted for 1/3 total; Globalized RMB to stabilize world economy

LONDON: China's top banks accounted for almost one-third of a record US$920 billion of profits made by the world's top 1000 banks last year, showing their rise in power since the financial crisis, a survey showed on Monday.

China's banks made $292 billion in aggregate pretax profit last year, or 32 percent of the industry's global earnings, according to The Banker magazine's annual rankings of the profits and capital strength of the world's biggest 1,000 banks.

Last year's global profits were up 23 percent from the previous year to their highest ever level, led by profits of $55 billion at Industrial and Commercial Bank of China (ICBC). China Construction Bank, Agriculture Bank of China and Bank of China filled the top four positions.

Banks in the United States made aggregate profits of $183 billion, or 20 percent of the global tally, led by Wells Fargo's earnings of $32 billion.

Banks in the eurozone contributed just 3 percent to the global profit pool, down from 25 percent before the 2008 financial crisis, the study showed. Italian banks lost $35 billion in aggregate last year, the worst performance by any country.

Banks in Japan made $64 billion of profit last year, or 7 percent of the global total, followed by banks in Canada, France and Australia ($39 billion in each country), Brazil ($26 billion) and Britain ($22 billion),The Banker said.

The magazine said ICBC kept its position as the world's strongest bank, based on how much capital they hold - which reflects their ability to lend on a large scale and endure shocks.

China Construction Bank jumped to second from fifth in the rankings of strength and was followed by JPMorgan , Bank of America and HSBC .

ICBC, which took the top position last year for the first time, was one of four Chinese banks in the latest top 10.

Wells Fargo has this year jumped to become the world's biggest bank by market value, after a surge in its share price on the back of sustained earnings growth. Its market value is $275 billion, about $75 billion more than ICBC.

The Banker said African banks made the highest returns on capital last year of 24 percent - double the average in the rest of the world and six times the average return of 4 percent at European lenders.- Reuters

Globalized RMB to stabilize world economy

BEIJING, June 27 (Xinhua) -- The globalization of the yuan, or renminbi (RMB), will not only benefit the Chinese economy, but generate global economic stability, a senior banker has said.

The yuan did not depreciate during the 1997 Asian financial crisis or the 2008 global financial crisis, helping stabilize the global economy, Tian Guoli, chairman of the Bank of China, said at a forum in London last week, according to the Friday edition of the People's Daily.

China's economy ranks second in the world and its trade ranks first, so it is thought that use of the RMB in cross-border trade will be a mutually beneficial move for China and its trade partners.

The yuan has acquired basic conditions to become an international currency as China's gross domestic product took 12.4 percent of the world's total and its foreign trade 11.4 percent of the world's total in 2013, Tian said.

According to the central bank, RMB flow from China hit 340 billion yuan (55.74 billion U.S. dollars) in the first quarter of 2014, replenishing offshore RMB fluidity. The balance of offshore RMB deposits hit 2.4 trillion yuan at the end of March, 1.51 percent of all global offshore deposits. Offshore trade between the yuan and foreign currencies doubled in the first quarter from the fourth quarter of last year.

Analysts widely forecast five steps in RMB internationalization: RMB used and circulated overseas, RMB as a currency of account in trade, RMB used in trade settlement, RMB as a currency for fundraising and investment, and RMB as a global reserve currency.

Already, some neighboring countries and certain regions in developed countries are circulating RMB, indicating the first step has been basically achieved.

Data provider SWIFT's RMB tracker showed that in May, 1.47 percent of global payments were in RMB, a tiny amount compared to the global total but up from 1.43 percent in April. This indicated progress in the second and third steps.

Some countries in southeast Asia, Latin America and Africa have or are ready to take RMB as an official reserve currency. It indicated the fourth and the fifth steps are burgeoning.

Investors are also optimistic about RMB globalization. Bank of China's global customer survey shows that over half of the respondents expect RMB cross-border transactions to rise by 20 to 30 percent in five years. And 61 percent of overseas customers say they plan to use or increase use of RMB as a settlement currency.

Li Daokui, head of the Center for China in the World Economy under Tsinghua University, said RMB internationalization is a long-term process and should be made gradually based on China's financial reforms, including freeing interests and reforms on foreign exchange rates.

Dai Xianglong, former central bank governor of China, forecast that it will take about 10 to 15 years to achieve a high standard of RMB internationalization.

Among the latest moves toward RMB internationalization is the naming of two clearing banks to handle RMB business overseas.

The central bank announced last Wednesday that it has authorized China Construction Bank to be the clearing bank for RMB business in London, and the next day named the Bank of China as clearing bank for RMB business in Frankfurt.- Xindua

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